Questions
Terms of a lease agreement and related facts were as follows: The lease asset had a...

Terms of a lease agreement and related facts were as follows:

  1. The lease asset had a retail cash selling price of $124,000. Its useful life was six years with no residual value (straight-line depreciation).
  2. Annual lease payments at the beginning of each year were $25,883, beginning January 1.
  3. Lessor’s implicit rate when calculating annual rental payments was 10%.
  4. Costs of $2,561 for legal fees for the lease execution were the responsibility of the lessor.

Required:
Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions:

1. The lease term is three years and the lessor paid $124,000 to acquire the asset (operating lease).
2. The lease term is six years and the lessor paid $124,000 to acquire the asset (sales-type lease). Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%.
3. The lease term is six years and the lessor paid $97,000 to acquire the asset (sales-type lease).

Required 1

1. 01/01: Record the gross lease revenue received by lessor.

2. 01/01: Record the negotiating costs incurred by lessor.

3. 12/31: Record the lease revenue for lessor.

4. 12/31: Record the cost of the lease to the lessor.

5. 12/31: Record the depreciation for lessor.

Required 2

1. 01/01: Record the beginning of the lease for lessor.

2. 01/01: Record the negotiating costs incurred by lessor.

3. 01/01: Record the gross lease revenue received by lessor.

4. 12/31: Record the interest revenue for lessor.

Required 3

1. 01/01: Record the beginning of the lease for lessor.

2. 01/01: Record the negotiating costs incurred by lessor.

3. 01/01: Record the gross lease revenue received by lessor.

4. 12/31: Record the interest revenue for lessor.

In: Accounting

On February 3, Smart Company sold merchandise in the amount of $4,500 to Truman Company, with...

On February 3, Smart Company sold merchandise in the amount of $4,500 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $3,100. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Multiple Choice

  • Cash 3,100
    Accounts receivable 3,100
  • Cash 4,500
    Accounts receivable 4,500
  • Cash 4,420
    Sales discounts 31
    Accounts receivable 4,451
  • Cash 3,020
    Accounts receivable 3,020
  • Cash 4,455
    Sales discounts 45
    Accounts receivable 4,500

In: Accounting

Lieb Ltd. is public company that trades on the TSX. On 3 March 2020, the company...

Lieb Ltd. is public company that trades on the TSX. On 3 March 2020, the company purchased 5,000 common shares of RO Inc. for total proceeds of $140,000, representing 30% of the total outstanding shares of RO Inc. Lieb Ltd. It was determined that at the time of purchase, it was able to exercise significant influence over RO Inc. On 30 September 2020, Lieb Ltd. received a dividend of $1.20 per share from RO Inc. On 31 December 2018, the market value of the RO Inc. investment had dropped to $18 per share. RO Inc.’s net income for the year ended 31 December 2020 was $63,000.

Required:

a)     Prepare all the required 2020 journal entries for transactions above.

b)    If Lieb Ltd. were not able to exercise significant influence over its investment in RO Inc. what other accounting choice(s) does it have to report the investment?

In: Accounting

A. Company XYZ has just paid a dividend of $3. As XYZ is a young company...

A. Company XYZ has just paid a dividend of $3. As XYZ is a young company and successful, it is estimated that they will grow at rate of 20% for 5 years and then at 3% in perpetuity. The company faces a required return on equity of 7%. What is the current price of the company’s stock using the DDM model? Use excel for all calculations​

In: Finance

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where...

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Finished Goods $8,400
Work in Process-Spinning Department 1,600
Work in Process-Tufting Department 2,100
Materials 4,500

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Jan. 1 Materials purchased on account, $84,300
2 Materials requisitioned for use:
Fiber—Spinning Department, $42,600
Carpet backing—Tufting Department, $34,500
Indirect materials—Spinning Department, $4,000
Indirect materials—Tufting Department, $2,500
31 Labor used:
Direct labor—Spinning Department, $27,200
Direct labor—Tufting Department, $18,600
Indirect labor—Spinning Department, $12,200
Indirect labor—Tufting Department, $11,800
31 Depreciation charged on fixed assets:
Spinning Department, $5,300
Tufting Department, $3,300
31 Expired prepaid factory insurance:
Spinning Department, $1,200
Tufting Department, $1,000
31 Applied factory overhead:
Spinning Department, $23,100
Tufting Department, $18,150
31 Production costs transferred from Spinning Department to Tufting Department, $86,000
31 Production costs transferred from Tufting Department to Finished Goods, $150,000
31 Cost of goods sold during the period, $154,500
Required:
1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.
2. Compute the January 31 balances of the inventory accounts.
3. Compute the January 31 balances of the factory overhead accounts.

Chart of Accounts

CHART OF ACCOUNTS
Port Ormond Carpet Company
General Ledger
ASSETS
110 Cash
121 Accounts Receivable
125 Notes Receivable
126 Interest Receivable
131 Materials
141 Work in Process-Spinning Department
142 Work in Process-Tufting Department
151 Factory Overhead-Spinning Department
152 Factory Overhead-Tufting Department
161 Finished Goods
171 Supplies
172 Prepaid Insurance
173 Prepaid Expenses
181 Land
191 Factory
192 Accumulated Depreciation-Factory
LIABILITIES
210 Accounts Payable
221 Utilities Payable
231 Notes Payable
236 Interest Payable
251 Wages Payable
EQUITY
311 Common Stock
340 Retained Earnings
351 Dividends
REVENUE
410 Sales
610 Interest Revenue
EXPENSES
510 Cost of Goods Sold
520 Wages Expense
531 Selling Expense
532 Insurance Expense
533 Utilities Expense
534 Supplies Expense
540 Administrative Expense
561 Depreciation Expense-Factory
590 Miscellaneous Expense
710 Interest Expense

Journal

1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

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Final Questions

2. Compute the January 31 balances of the inventory accounts.

Materials
Work in Process:
• Spinning Department
• Tufting Department
Finished Goods

3. Compute the January 31 balances of the factory overhead accounts. Enter all amounts as positive numbers.

Factory Overhead:
• Spinning Department
• Tufting Department

In: Accounting

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where...

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Finished Goods $6,000
Work in Process-Spinning Department 1,300
Work in Process-Tufting Department 2,100
Materials 4,800

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Jan. 1 Materials purchased on account, $81,300
2 Materials requisitioned for use:
Fiber—Spinning Department, $42,000
Carpet backing—Tufting Department, $34,000
Indirect materials—Spinning Department, $3,300
Indirect materials—Tufting Department, $2,500
31 Labor used:
Direct labor—Spinning Department, $26,800
Direct labor—Tufting Department, $18,700
Indirect labor—Spinning Department, $11,500
Indirect labor—Tufting Department, $11,700
31 Depreciation charged on fixed assets:
Spinning Department, $5,300
Tufting Department, $3,300
31 Expired prepaid factory insurance:
Spinning Department, $1,200
Tufting Department, $1,100
31 Applied factory overhead:
Spinning Department, $21,700
Tufting Department, $18,400
31 Production costs transferred from Spinning Department to Tufting Department, $86,500
31 Production costs transferred from Tufting Department to Finished Goods, $153,600
31 Cost of goods sold during the period, $155,200
Required:
1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.
2. Compute the January 31 balances of the inventory accounts.
3. Compute the January 31 balances of the factory overhead account
CHART OF ACCOUNTS
Port Ormond Carpet Company
General Ledger
ASSETS
110 Cash
121 Accounts Receivable
125 Notes Receivable
126 Interest Receivable
131 Materials
141 Work in Process-Spinning Department
142 Work in Process-Tufting Department
151 Factory Overhead-Spinning Department
152 Factory Overhead-Tufting Department
161 Finished Goods
171 Supplies
172 Prepaid Insurance
173 Prepaid Expenses
181 Land
191 Factory
192 Accumulated Depreciation-Factory
LIABILITIES
210 Accounts Payable
221 Utilities Payable
231 Notes Payable
236 Interest Payable
251 Wages Payable
EQUITY
311 Common Stock
340 Retained Earnings
351 Dividends
REVENUE
410 Sales
610 Interest Revenue
EXPENSES
510 Cost of Goods Sold
520 Wages Expense
531 Selling Expenses
532 Insurance Expense
533 Utilities Expense
534 Supplies Expense
540 Administrative Expenses
561 Depreciation Expense-Factory
590 Miscellaneous Expense
710 Interest Expense

1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

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9

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11

12

13

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18

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28

2. Compute the January 31 balances of the inventory accounts.

Materials
Work in Process:
• Spinning Department
• Tufting Department
Finished Goods

3. Compute the January 31 balances of the factory overhead accounts. Enter all amounts as positive numbers.

Factory Overhead:
• Spinning Department
• Tufting Department

In: Accounting

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where...

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Finished Goods $62,000
Work in Process-Spinning Department 35,000
Work in Process-Tufting Department 28,500
Materials 17,000

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Jan. 1 Materials purchased on account, $500,000
2 Materials requisitioned for use:
Fiber—Spinning Department, $275,000
Carpet backing—Tufting Department, $110,000
Indirect materials—Spinning Department, $46,000
Indirect materials—Tufting Department, $39,500
31 Labor used:
Direct labor—Spinning Department, $185,000
Direct labor—Tufting Department, $98,000
Indirect labor—Spinning Department, $18,500
Indirect labor—Tufting Department, $9,000
31 Depreciation charged on fixed assets:
Spinning Department, $12,500
Tufting Department, $8,500
31 Expired prepaid factory insurance:
Spinning Department, $2,000
Tufting Department, $1,000
31 Applied factory overhead:
Spinning Department, $80,000
Tufting Department, $55,000
31 Production costs transferred from Spinning Department to Tufting Department, $547,000
31 Production costs transferred from Tufting Department to Finished Goods, $807,200
31 Cost of goods sold during the period, $795,200
Required:
1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.
2. Compute the January 31 balances of the inventory accounts.
3. Compute the January 31 balances of the factory overhead accounts.

Chart of Accounts

CHART OF ACCOUNTS
Port Ormond Carpet Company
General Ledger
ASSETS
110 Cash
121 Accounts Receivable
125 Notes Receivable
126 Interest Receivable
131 Materials
141 Work in Process-Spinning Department
142 Work in Process-Tufting Department
151 Factory Overhead-Spinning Department
152 Factory Overhead-Tufting Department
161 Finished Goods
171 Supplies
172 Prepaid Insurance
173 Prepaid Expenses
181 Land
191 Factory
192 Accumulated Depreciation-Factory
LIABILITIES
210 Accounts Payable
221 Utilities Payable
231 Notes Payable
236 Interest Payable
251 Wages Payable
EQUITY
311 Common Stock
340 Retained Earnings
351 Dividends
REVENUE
410 Sales
610 Interest Revenue
EXPENSES
510 Cost of Goods Sold
520 Wages Expense
531 Selling Expenses
532 Insurance Expense
533 Utilities Expense
534 Supplies Expense
540 Administrative Expenses
561 Depreciation Expense-Factory
590 Miscellaneous Expense
710 Interest Expense

Journal

1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Final Questions

2. Compute the January 31 balances of the inventory accounts.

Materials
Work in Process:
• Spinning Department
• Tufting Department
Finished Goods

3. Compute the January 31 balances of the factory overhead accounts.

Factory Overhead:
• Spinning Department
• Tufting Department

In: Accounting

Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for...

Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. TSP will lease the returned computers to other customers. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows:

Lease DataYearly rental: $3,057.25

Lease term: 3 years

Estimated economic life: 5 years

Purchase option: $3,000 at end of 3 years, which approximates fair value

Renewal option: 1 year at $1,500; no penalty for nonrenewal; standard renewal clause

Fair value at commencement: $10,000

Cost of asset to lessor: $8,000

Residualvalue:

Guaranteed: $0

Unguaranteed: $3,000

Lessor's implicit rate (known by the lessee)12%Estimated fair value at end of lease: $3,000

Answer the following questions:


1 . Briefly discuss the impact of the accounting for this lease as a finance or operating lease for two common ratios: return on assets and debt to total assets.

2.What fundamental quality of useful information is being addressed when a company like Salaur capitalizes all leases with terms of one year or longer?

In: Accounting

Your insurance company has converged for three types of cars.The annual cost for each type...

Your insurance company has converged for three types of cars. The annual cost for each type of cars can be modeled using Gaussian (Normal) distribution, with the following parameters: (Discussions allowed!)

  • Car type 1 Mean=$520 and Standard Deviation=$110

  • Car type 2 Mean=$720 and Standard Deviation=$170

  • Car type 3 Mean=$470 and Standard Deviation=$80

Use Random number generator and simulate 1000 long columns, for each of the three cases. Example: for the Car type 1, use Number of variables=1, Number of random numbers=1000, Distribution=Normal, Mean=520 and Standard deviation=110, and leave random Seed empty.

Next: use either sorting to construct the appropriate histogram or rule of thumb to answer the questions:

13. What is approximate probability that Car Type 3 has annual cost less than $550?

  • a. Between 1% and 3%

  • b. Between 27% and 39%

  • c. Between 75% and 90%

  • d. None of these

14. Which of the three types of cars is most likely to cost less than $400?

  • a. Type 1

  • b. Type 2

  • c. Type 3

15. For which of the three types we have the highest probability that it will cost between $500 and $700?

  • a. Type 1

  • b. Type 2

  • c. Type 3

In: Statistics and Probability

Your insurance company has converged for three types of cars. The annual cost for each type...

Your insurance company has converged for three types of cars. The annual cost for each type of cars can be modeled using Gaussian (Normal) distribution, with the following parameters: (Discussions allowed!)

  • Car type 1 Mean=$520 and Standard Deviation=$110
  • Car type 2 Mean=$720 and Standard Deviation=$170
  • Car type 3 Mean=$470 and Standard Deviation=$80

Use Random number generator and simulate 1000 long columns, for each of the three cases. Example: for the Car type 1, use Number of variables=1, Number of random numbers=1000, Distribution=Normal, Mean=520 and Standard deviation=110, and leave random Seed empty.

Next: use either sorting to construct the appropriate histogram or rule of thumb to answer the questions:

13. What is approximate probability that Car Type 3 has annual cost less than $550?

  • a. Between 1% and 3%
  • b. Between 27% and 39%
  • c. Between 75% and 90%
  • d. None of these

14. Which of the three types of cars is most likely to cost less than $400?

  • a. Type 1
  • b. Type 2
  • c. Type 3

15. For which of the three types we have the highest probability that it will cost between $500 and $700?

  • a. Type 1
  • b. Type 2
  • c. Type 3

In: Statistics and Probability